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Testing for optimality in job search models

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  • GARY KOOP
  • DALE J. POIRIER

Abstract

Models of search in labor markets are potentially of great use for policy analy-sis since their parameters are structural. However, a common feature of these models is that an assumption of optimal behavior on the part of agents is necessary to achieve identifica-tion. From a classical econometric perspective, this means the assumption of optimality is untestable and, if optimality is not imposed, it is impossible to learn about the unidentified parameters. This paper argues that Bayesian methods can overcome both of these problems. In particular, we discuss testing optimality in stationary job search models with reservation wages. Learning about economically meaningful quantities such as the discount rate and risk aversion, not identified by the data alone, is considered.

Suggested Citation

  • Gary Koop & Dale J. Poirier, 2001. "Testing for optimality in job search models," Econometrics Journal, Royal Economic Society, vol. 4(2), pages 1-6.
    • Handle: RePEc:ect:emjrnl:v:4:y:2001:i:2:p:6
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    Cited by:

    1. M. Daniele Paserman, 2008. "Job Search and Hyperbolic Discounting: Structural Estimation and Policy Evaluation," Economic Journal, Royal Economic Society, vol. 118(531), pages 1418-1452, August.
    2. Richard J. Boys & Peter J. Dolton & Neil R. Walker, 2007. "Adapting the optimal job search model for active labour market policy," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 170(3), pages 759-779, July.

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